A group of the leading virus experts in the US has called for new, permanent restrictions on research in the face of a new genetically engineered flu virus that could kill half the population of the world.

An outbreak of this virus could be worse than the 1918 Spanish flu that killed tens of millions of people, warned Michael Osterholm – who has led research into previous dangerous outbreaks – at a public meeting on censorship in science in New York on Thursday night.

"Frankly, I don't want a virus out there that, even if it was 20 times less lethal, would still be the worst influenza pandemic in history," he said.

Bird flu, or H5N1, has so far infected 583 people according to World Heath Organisation figures, mostly in South East Asia, and killed 344 – though it is believed the proportion of fatalities to infections might be lower, as some may have caught the virus but not been hospitalised.

It can currently only be caught by close exposure to infected birds.

However, the new research demonstrated that the virus could be mutated, through genetic manipulation and other methods, into a form that was transmitted between ferrets in airborne droplets from coughs and sneezes.

Ferrets are considered a good model for human-to-human virus transmission.

The NSABB said this posed a huge risk to the world.

"If this virus were to escape by error or by terror, we must ask whether it would cause a pandemic," said NSABB chair Paul Keim in an interview published in Nature this week.

"The probability is unknown, but it is not zero. There are many scenarios to consider, ranging from mad lone scientists, desperate despots and members of millennial doomsday cults, to nation states wanting mutually assured destruction options, bioterrorists or a single person's random acts of craziness."

Professor Osterholm said he considered the new virus a worse threat than the return of smallpox.

"I wouldn't like to see smallpox get out of the lab, but if it did it wouldn't overly concern me," Osterholm said. "We could contain it. The same thing is true with Sars. But influenza would scare the hell out of me, because it is the most notorious, the 'Lion King' of transmission."

"Once it's out there, it's gone, it's worldwide."

However, he said the research could have positive results, such as finding a better vaccine, or improving virus detection in the early stages of a pandemic if it emerged naturally. He said virus surveillance at the moment was "like a whole lot of broken smoke alarms".

The meeting agreed that restricting research, and access to research data, would have bad consequences for science, because new advances often come from unexpected places.

Several speakers said the publication of redacted data should only be a temporary measure until a better solution was hit upon.

Professor Arturo Casadevall, from the Albert Einstein College of Medicine, who is also on the NSABB board, said he had originally been against restricting research but had been persuaded it was necessary.

"If it is the worst case scenario half the people you know will die, and half the people you don't know will die," he said. "If it is two orders of magnitude (100 times) lower, you are looking at 7 million deaths.

"These viruses were generated in the laboratory … when these things get out and they recombine with existing strains, I think it will be very unpredictable, and this is a risk I think is very high."

However, he said research should continue in a more regulated way.

"Since 1997, we have had sporadic occurrences of this organism," he said. "We did not know it had the potential for mammal to mammal transmission. Now that we know, humanity is under threat and this work needs to go on."

Dr Laurie Garrett, from the Council on Foreign Relations, said any move to control or limit research into influenza would also limit the ability to protect against it if it emerged naturally.

But she added that the more laboratories around the world worked on the virus, the greater the risk it would escape – even in the US, there were hundreds of breaches of quarantine in the highest-level labs.

And she said the spectre of a biological weapon based on the virus was raised "very, very high".

She warned that if scientists agreed a way to move forward among themselves, without consulting more widely, they may discover the issue will "blow up" once the public is made more aware of it.

Alan Ruldolph, from the US Department of Defense's Defense Threat Reduction Agency, said information on the virus was "relatively uncontrollable", and the focus on bird flu should be on how to prepare for and respond to an outbreak.

It is estimated more than 1,000 scientists already know the details of the censored research.

Professor Peter Palese from the Mount Sinai School of Medicine said the moratorium should end and research should continue.

He said the risk of the virus spreading to humans, and the level of danger it posed, had been vastly overestimated.

"All evidence we have now suggests H5N1 isn't easily transmitted to humans, and these experiments don't make it more likely," he said. "When do you stop being afraid?"

Virus experts from around the world are to meet in Geneva this month, at a meeting of the World Health Organisation aimed at assessing the risks, and benefits, of research into the bird flu virus.